13 36 Question 2 - 15 marks 37 88 02 Greenlife Woodworks Inc is considering purchasing two different items of machinery, as described below 39 40 Machine A. 41 A machine has just come onto the market that compresses sawdust into various shelving products Currently, the awhunt is 42 disposed of as a waste product. The following information is available about the machine 4. The machine would cost $800,000 and would have a 25% salvage value at the end of its 10 year weful life. The company 5 uses straight line depreciation and considers salvage value in computing depreciation deductions 6 b. The shelving products produced by the machine would generate revenues of $380,000 per yeat. Variable manufacturing costs would be 20% of sales. c Fixed annual expenses associated with the new shelving products would be advertising, S45,000 salaries, $80,000 utilities, $10,000; and insurance, $15,000 Machine B: A second machine has come onto the market that would automate a sanding process that is now done largely by hand. The following information is available about this machine a. The new sanding machine would cost $220.000 and would have no salvage value at the end of its 10-year useful life The company would use straight-line depreciation b. Several old nieces of sanding equipment that are fully depreciated would be disposed of at a scran value of $7.200 SECTION 3 SECTION 4 SECTION 5 SECTION 6 FORMULA SHEET New B b. Several old pieces of sanding equipment that are fully depreciated would be disponed of scop value of $1200 The new sanding machine would provide substantial amal savings in cash operating costs. It would reparem operator at an annual salary of $26,000 and $3.000 in smal maintenance costs. The current and operated and procedure costs the company $85,000 per year The company requires a simple rate of return of 16% on all equipment pachases and also the company will not purchase equipment unless the equipment has a payback period of four years or less Required: a) For machine A, prepare a Contribution margin income statement using proper format showing the expected met operating income each year from the new shelving products. (8 marks) Greenlife Woodworks Inc. Contribution Format Income Statement Show anylall workings here: New. FORMULA SHEET SECTION 6 SECTION 5 B6 D). For machine A, compute the simple rate of retum (1 mark) 87 88 89 c) For machine A. compute the payback period. (1 mark) years 90 91 92 d) For machine B, compute the simple rate of return (2 marks) % 93 94 lycats 95 e). For machine B, compute the payback period. (1 mark) 96 97 98 f). According to the company's investment criteria, which machine (A or B) 99 should the company purchase? (1 mark) 100 101 ) Briefly explain why you chose Machine A or B in your answer in (f) above? (1 mark) New TOOMIA SHEET